In Asia Pacific, 900 million people pay bribes for public services

Thailand's 4m rice farming households - key constituents in the country's often politically charged paddy fields - are on a downward trajectory of economic hardship and falling rice prices. A much-vaunted government support scheme launched last year has exacerbated the situation after falling short: fewer than 100,000 of a universe of 2.0m-3.0m qualifying households are participating.
Rice subsidies, already politically sensitive, will be even more so at the next election, with greater support likely for Puea Thai if hardship increases. We see little hope for a significant rice price rebound this year as the government still has an 8.0m tonne stockpile, equivalent to roughly 80 per cent of a full year's rice exports.
Rice is sensitive in Thailand, no more so than for the 4.0m farming households in the main rice-growing regions of the north and north-east. As prices have fallen, rice farmers have seen their incomes evaporate. They have been forced to reduce consumption and eliminate discretionary spending. FTCR field studies suggest that most have taken on additional debt to cover basic expenses.
Meanwhile, economic sentiment remains subdued in Thailand's rice growing regions, as it does elsewhere in the country. Attempts by successive governments to alleviate the situation with various forms of subsidy - sometimes labelled "pledging" schemes - have done little to improve farming livelihoods. However, the longer the price of rice remains depressed, the more significant rice subsidies become for Thai politics. Rice farmers represent a core consistency in the most populous regions outside Bangkok.
PRICE PAIN: The wholesale price of rice in Thailand shows no sign of recovery from the collapse that began in 2014. Class one, 100 per cent jasmine rice fetched an average of $633 per tonne last month, 44 per cent below a high of $1,131 in April 2013. Class one, 100 per cent white rice has dropped 39 per cent. Rice farmers say they cannot recall more difficult conditions.
On the surface, price fluctuations for Thailand's biggest agricultural commodities have little impact on the overall economy. Last year rice exports made up only 1.1 per cent of gross domestic product (GDP) and the output of the entire agricultural sector totalled 8.7 per cent, not including agro-manufacturing. Yet those 4.0m Thai households depend on income directly linked to the global price of the commodity.
We visited two village-level rice farmer associations in Phitsanulok, about 400km north of Bangkok, and found average expenditures of 4,500 baht ($128) per tonne of paddy rice for fertiliser and other inputs and sale prices to local millers of just 5,400 baht for freshly harvested white rice - a tiny profit of around $25 per tonne. These figures do not include the farmers' own labour; if this were valued at Thailand's minimum wage, the farmers would be operating at a loss.
Farmers from Buriram, Surin and Yasothon - three provinces in Isan, Thailand's vast eastern region - spoke of similar conditions and were pessimistic about staying in rice production. One farmer from Buriram said his family had decided not to sell its small output of rice at "giveaway" prices, preferring to keep it for personal consumption. Members of his extended family had also reduced their production. The heads of the two rice associations in Phitsanulok said every household in their villages was in debt. As a result, families are often in a hurry to sell their rice and generate cash, reducing their already limited bargaining power with millers and traders. Their profit margin could be increased by storing and drying out the rice. But this would require delaying the receipt of badly needed revenue.
It would also require additional labour and storage facilities. Many small-scale rice farmers do not have barns, particularly in the northern part of the country.
LITTLE HOPE FOR A PRICE REBOUND THIS YEAR: Charoen Laothamatas, president of the Thai Rice Exporter Association (TREA), expects at least another year of depressed prices. He and other experts place the blame in large part on a domestic supply glut, a hangover from the previous government's rice pledging scheme.
Under that now infamous programme, the Puea Thai government, led by former prime minister Yingluck Shinawatra, bought rice directly from farmers at up to 50 per cent more than market prices, turning the Thai government into the world's largest rice trader. By the time the 2014 coup put an end to the failing scheme, stockpiles had reached 18m tonnes, equal to roughly two years' exports.
Under the military government, the volume of exports has returned to normal but their value has declined. In 2016, rice exports declined by 4.6 per cent in value, even as tonnage increased slightly. Three years after the coup, 8.0m tonnes remain, according to the TREA. This is equivalent to about 20 per cent of annual global rice exports - more than enough to depress the world market. Less than half is expected to be saleable for human consumption; the rest must find its way into already oversupplied markets for animal feed and biofuel feedstock.
The junta added to the glut last year by offering an interest rate subsidy to rice traders that allowed them to buy rice on credit for below-market rates. This promoted immediate demand but also added to private rice stockpiles that eventually will need to be sold. An unexpectedly productive rice harvest late last year added to oversupply.
Compounding the domestic surplus, rice production has increased globally in recent years. Vietnam now exports about as much rice as Thailand and rice importing countries such as the Philippines have reduced demand by increasing domestic production. We do not yet see evidence in Thailand of any shift away from the current rice production model that would help the demand-supply imbalance. While some farmers have started to plant other crops and others have adopted natural or organic techniques that allow them to target a higher-end market, such instances remain exceptions. Nonetheless, signals at the fringes of the rice sector suggest these will be important trends to watch over the longer term.
CURRENT GOVERNMENT POLICIES FALL SHORT: The military regime's most extensive support for rice farmers, a pledging scheme involving rice storage, has so far failed to attract significant participation. As wholesale rice prices tumbled further in late 2016, the junta launched a complex programme that compensates farmers willing to store rice rather than sell it immediately. Participants receive a storage subsidy and access to soft loans so that they do not face financial pressure to sell. The programme is intended to slow the entry of addition rice into a flooded market.
However, of an estimated 2.0m-3.0m qualified households, just 100,000 or fewer are taking part, according to Dr Nipon Poapongsakorn at the Thailand Research and Development Institute. One reason is that when all its components are factored in, the scheme provides, for example, just 13,000 baht per tonne for jasmine rice, and still requires the farmers to eventually sell it and repay the loan. This may be attractive enough in the current market but is unappealing compared with Yingluck's programme that paid 20,000 baht per tonne for jasmine rice. A simpler reason is the farmers' lack of barns. In some cases, local co-operatives may be able to provide storage facilities but this adds further complexity to the scheme.
Under a separate government scheme, rice farmers receive a small annual cash transfer linked to the amount of land allotted to rice production. In 2016, the annual subsidy of 1,000 baht per rai (1.0 rai = 0.16 hectare) was increased by about 800 baht per rai - the precise amount is tied to average volume of output per rai - up to a maximum of 15 rai. This totals, at most, to about 27,000 baht. This is a meaningful sum for an average Thai family but does not make rice farming a sustainable option in current market conditions. Some farmers report difficulty enrolling in the scheme, which is handled by the government's Bank for Agriculture and Agricultural Co-operatives.
We believe that if prices do not start to improve by the end of the year, the government may offer a modest increase to the cash transfer or pledging scheme. An entirely new programme is less likely. In any case, we do not think the junta will increase support to a level that allows rice farming households to resume significant discretionary spending, as they did when their incomes jumped under the Yingluck scheme. To do so would be costly as well as politically fraught, given the previous administration's experience with its overly-generous subsidy scheme.
Unfortunately, it appears highly likely that Thailand's rice farmers will face continued difficulties until the supply glut has passed. Political impact favours Puea Thai Rice farmers, particularly in Isan and in the upper north, tend to favour the Thaksin Shinawatra-linked governments, most recently Puea Thai, that have won every election since 2001. These administrations have offered them the greatest financial support, albeit with disastrous fiscal and market impact in the case of the Puea Thai rice pledging scheme.
The longer the price of rice remains depressed, the more significant rice subsidies become for Thai politics. Rice farmers already lean heavily towards Puea Thai and will be even more likely to stick with the party in the next election while conditions in the rice market threaten their survival.
Under the FE's syndication arrangement